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Gold poised to further appreciate

26 January 2009 10:24 (UTC +04:00)

The official rate of gold stood at AZN 705.2 ($875.8) an ounce in Azerbaijan on January 26, a 5.3% surge over the week.
Gold prices were boosted by soaring oil prices and investors seeking safety amid the market turmoil. Some investors buy the precious metal as a store of value in times of financial turmoil.
The outlook for the global economy and base metals in particular is dismal, but the outlook for gold is positive.
Because the greenback and dollar-denominated gold prices often move in the opposite direction, gold prices are expected to go up when the US administrationâ€™s measures decrease the US dollar against the major currencies in order to make the anti-crisis plan workable.
In Mid-January, Merrill Lynch revealed that some of its richest clients were so alarmed by the state of the financial system and signs of political instability around the world that they were insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens.
If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value.
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate.